Signal
Anduril Industries publicly rejects the legacy defence‑contracting model. Rather than rely on “cost‑plus” contracts that pay for time, materials, and profit regardless of outcome, Anduril self‑finances R&D and builds working systems first, then offer. Luckey says the company subjects every new product idea to a four‑step decision filter. Unless the answer to all four is “yes,” development does not proceed, no matter how technically impressive or “cool” the concept may be.
The four tests are:
Is it a top priority for senior leadership at the defence customer (e.g. the Pentagon)?
Will Congress actually appropriate funding for it - is there a political funding will?
Is there an incumbent competitor or legacy contractor failing or moving inefficiently (i.e. is the sector “broken”)?
Can Anduril build it faster, better, and cheaper than the legacy alternative?
Luckey’s “Batmobile” metaphor warns that bypassing this filter produces expensive prototypes that never deploy like the early “Sentry Tank,” an autonomous vehicle built by Anduril with external collaborators that was ultimately abandoned for political reasons, not technical ones
Why it matters
The legacy cost‑plus model distorts incentives in defence procurement: contractors are rewarded for time spent and expenses incurred not results delivered. This reduces pressure to control costs or deliver quickly, and often results in delayed, over‑budget, or under‑performing systems. Anduril’s four‑gate filter combined with upfront self‑funding realigns incentives toward real-world usefulness, speed, and cost‑efficiency. If widely adopted, this model could reshape how militaries acquire new capabilities, accelerate deployment of autonomous and AI‑driven systems, and expose legacy defence primes to competitive pressure.
Strategic Takeaway
Defence innovation is no longer about generating long procurement pipelines. It’s about building lean, iterating fast, and delivering what works. Firms that apply tough decision filters and real‑world cost discipline are likely to define the next generation of military capability.
Investor Implications
Investors should prioritise defence‑tech firms built around disciplined product-first models, not firms reliant on cost‑plus contracts. Companies that self‑fund R&D and apply strict go/no‑go criteria before production are likely to deliver higher margins and lower risk. As militaries increasingly prefer fixed-price, performance‑based procurement for autonomy, AI, and ISR systems, these firms may capture significant market share, particularly in drone, sensor and software‑driven defence niches.
Watchpoints
2026 → Major procurement decisions in the U.S. or allied militaries: which projects are awarded to firms using fixed‑price/product‑centric models vs legacy cost‑plus primes.
2026–2027 → Growth of new “defence‑product” firms emulating Anduril’s four‑gate approach — signalling industry‑wide shift.
2027–2028 → Possible policy or regulatory adjustments in procurement frameworks favouring fixed‑price/product contracting over cost‑plus, as governments react to inefficiencies.
Tactical Lexicon: Cost‑Plus vs Product‑First Contracting
Cost‑Plus Contract: A contract where a contractor is reimbursed for all allowable costs (materials, labor, overhead) plus a fee or profit margin, incentivising longer timelines and cost growth, but not necessarily performance or efficiency.
Product‑First / Defence‑Product Company Model: A model where a firm self‑funds R&D and internal prototyping, builds complete systems at its own risk, and offers them on fixed‑price or deliverable‑based contracts, aligning incentives with performance, cost‑efficiency, and speed.
Sources: x.com
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